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Banks restructure Sh679bn loans on corona cash crunch

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The Central Bank of Kenya building in Nairobi. FILE PHOTO | NMG

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Summary

  • Personal and household loans top the list with Sh199.1 billion reviewed since March or 29.3 percent of the total loans that have been restructured.
  • This highlights the struggle workers that had borrowed loans on the strength of their payslips are facing amid layoffs, pay cuts and unpaid leave.

Banks have restructured loans worth Sh679.6 billion or 23.4 percent of the total loan book by end of May due to the coronavirus disease economic hardships that have hurt the borrowers’ ability to repay.

Personal and household loans top the list with Sh199.1 billion reviewed since March or 29.3 percent of the total loans that have been restructured.

This highlights the struggle workers that had borrowed loans on the strength of their payslips are facing amid layoffs, pay cuts and unpaid leave.

Businesses reviewed loans worth Sh480.6 billion in the period to May, led by firms in the trade sector followed by real estate, tourism and the transport industry—sectors that have been hit hard by effects of the Covid-19 pandemic.

The Central Bank of Kenya (CBK) allowed lenders to offer relief to distressed customers in mid-March after the first positive case of Covid-19 in the country was reported.

Under the CBK’s initiative to offer relief to borrowers, struggling individuals and companies can take a three-month repayment holiday, lengthen the tenure of their loans, or opt to just pay the interest for a period of time.

The relief also applies to credit card debt and mortgages.

CBK Governor Patrick Njoroge Thursday said that the impact of the State restrictions to curb the spread of the coronavirus disease like night curfews and a ban of mass gatherings was severe in April, suggesting an easing of economic hardships.

“Total loans that have been restructured are worth Sh679.6 billion and accounted for 23.4 percent of the total banking sector loan book of Sh2.9 trillion. These measures have provided the intended relief to borrowers,” Dr Njoroge said Thursday.

CBK did not comment on the potential impact of the loan restructuring on its earnings this year.

Kenya’s confirmed Covid-19 positive cases rose to 5,384 yesterday while the number of fatalities are 130.

The crisis has shut down the country’s vital tourism sector, hammered its fresh produce exports and severely disrupted other sectors like construction, trade and transportation.

The government has halved its projected economic growth for this year to three percent from an initial forecast of six percent

Apart from allowing lenders to offer relief to distressed borrowers, the CBK has also cut lending rates and lowered the ratio of cash that commercial banks are required to hold.

The government also reduced value added tax by two percentage points to 14 percent and imposed cuts on corporate and income tax.

On Thursday, the CBK kept interest rates unchanged for the second time in two months, saying the easing measures it had adopted since the onset of the coronavirus crisis in March were working.

Policymakers, who lowered the key rate by a hefty total of 125 basis points in March and April after Kenya’s first case of the Covid-19 disease was confirmed, left it unchanged at 7.0 percent. “The committee noted that the package of policy measures adopted since March were having the intended effect on the economy, and will be augmented by the announced fiscal measures,” the Monetary Policy Committee (MPC) said in a statement.

But there were glimmers of good news, the committee said, with private sector credit growth at 8.1 percent in the year to May, close to its ideal growth rate of 12-15 percent. Farm exports like tea and horticulture also started to rebound in May and June.